The disruptive innovation of daily fantasy sports

The fantasy sports industry is not a recent invention. Fantasy sports started way back in the 1950's with golf. It found legs when fantasy baseball and the rotisserie format established itself in the 1980s. Fantasy sports really started to hit the mainstream with a boom when the internet and football were combined to bring today's modern day juggernaut of fantasy football.

But there is a new kid on the block that is changing the rules of fantasy sports and that is daily fantasy that could disrupt the fantasy sports industry.

Wikipedia defines disruptive innovation as:
A disruptive innovation is an innovation that helps create a new market and value network, and eventually disrupts an existing market and value network (over a few years or decades), displacing an earlier technology.
Replaced by Computers
Daily fantasy game providers have indeed started to carve out a new market. FanDuel is projecting to revenues of $50 million this year and is currently the official daily game of the NBA. Their rival, DraftKings, has recently raised $41 million in funding, and is currently the official daily game of the NHL and MLB. The industry has also seen the entry of some mainstream brands such as USA Today and Sports Illustrated.

Daily fantasy is very similar to traditional fantasy sports in many ways of game play. For example, winning and scoring for players in football is  similar. The touchdown is worth 6 points and rushing/receiving yards are worth 1 point for every 10 yards, with quarterback stats slightly throttled at 4 points per touchdown and 1 point every 25 yards. In order to win, fantasy owners pick the player combination that will score them the most points.

Daily fantasy and traditional fantasy differ though in the time format. Traditional fantasy usually lasts an entire season, while daily will last only a day, or a week in football. The short time period allows fantasy owners to restart their league and gives them little commitment. The short time period also has advantages for fantasy owners to filter out players with injuries or on cold streaks. The short time is also ideal for how daily fantasy generates revenues.

Replaced by Cell Phones
Daily fantasy monetizes differently than traditional fantasy. Traditional fantasy has been "free". Free means that the owners generally do not pay to play fantasy sports. The fantasy sports providers gets a return by either direct ad supported games like Yahoo, or they get a return by ads and viewership when fantasy owners watch games like ESPN. There are some leagues that will charge a fee for creation of leagues that are heavy customization.

Daily fantasy charges owner to play and then returns a percentage of that fee back to a winner. Typical daily fantasy game providers take 10% of this fee. The daily game providers are looking to drive more players and more turn over of games so that they can earn the 10% for each daily game played. These game providers tend to be more web technology driven and have low barriers to entry as there have are several companies that provide white label services to provide daily game providers and easier setup and lower maintenance cost.

There have been many technologies that have been replaced by disruptive innovation. The typewriter has been replaced by desktop PCs and tablets. Phone booths are now obsolete when everyone has a cell phone. The traditional 25 volume encyclopedias are a thing of the past with online information freely available at such sites like Wikipedia. Finally, another classic disruptive innovation was the Model T by Ford that was able to replace automobiles at the time with its efficiency and time to market.

Daily fantasy has the potential to do that however there are some hurdles it must overcome to be the predominant game format for fantasy. It must resolve the legality of the gambling issue with daily fantasy. Although federal law has exempt fantasy sports from gambling, the current incarnation of daily fantasy may not have been the original intent of the Unlawful Internet Gambling Act that provided the exemption of fantasy sports.

Replaced by Wikipedia
For daily fantasy to overtake traditional fantasy, there should be a signal that shows that game providers are encroaching on traditional fantasy turf. That could look like a daily fantasy game provider exceeding the number of players that Yahoo! or ESPN has, or perhaps they have exceeded the quarterly revenue of those two giants. When that time comes, there will also be changes in player consumption of content. Today, fantasy sport causes a jump in internet traffic at the beginning of football season. If daily fantasy continues seep into the mainstream that internet traffic will spread throughout the season.


Daily fantasy is definitively an industry to keep on eye on. Its recent growth numbers and splash in marketing that daily fantasy game providers are investing in with professional teams will make them very visible in the public. For daily fantasy to overtake mainstream fantasy there are "features" that it must showcase from traditional fantasy. Social networking and social interaction has been a key driver to keeping traditional fantasy player returning and engaged each and every season. It is easier to come back to a league when your family and friends have tradition in the season leagues. Also, fantasy sports offers owners a wish fulfillment in terms of managing their own team. This is highlighted in the years of management of a dynasty team. Traditional leagues also have drafts, trades and waiver wire  replication of real sports that make the fantasy sports fun to play.